How To Find The Right Investors For Your Startup
April 18, 2012
Mo’ money, mo’ problems or “Touched by an angel.”
Either all the money in the world won’t fix your problems, or it seems like all you need is just a penny more to get it done.
And even though you need the green juice to survive, countless entrepreneurs emphasize that finding the right match between your company’s vibe and your investors’ is even more important.
So before you grab the money and run, think about these tips and ideas to help guide your search for good match investors.
Before you can decide which investors are a good fit or not, you actually need to find them. In an Inc.com post on how to do just that, Hearley Jones, a former VC, points out that while there used to just be venture capitalists, today there are angels, super angels, micro-venture capitalists, venture capitalists, and growth investors.
Jones recommends that entrepreneurs carefully figure out what kind of investors their businesses actually need before hitting the circuit asking for money.
A good way to do this is by networking in your space with successful entrepreneurs who may have already received investments from a particular angel or VC you’re looking to hit up.
Follow Your Bliss
Eric Lefkofsky, co-founder of Groupon, is particularly adamant about networking within your space, as he feels that investors are more likely to invest in areas where they have a robust level of expertise.
Once you’ve found a good few potential investors, then it’s all about weeding out the ones who don’t truly share your brand of entrepreneurial tenacity and spirit.
Don Rainey, a general partner at VC firm Grotech Ventures, says it all comes down to finding investors that “buy into the assumptions you have made about the future. If you don’t share the same common view of what’s possible, an investor won’t invest with you.” And you probably wouldn’t want to take their money, either.
Famed entrepreneur-bad boy Richard Branson is quick to point out that even though the depth of an investor’s pocket is critical to your business, “it is not the essential quality that will sustain the relationship and the business in the long term.”
One of Branson’s underlying funding strategies is to “bear in mind that a dictatorial financial partner can dim the spirit and enthusiasm of a new enterprise, muffling the spark that prompted you to launch this project — the spark that is most likely to make your venture different from your competitors.”
He’s found that his biggest successes were with investors who took a minority stake, provided capital and support, and then took a backseat to let him run the business and hire the key employees.
A rich investor is always nice, but an investor who will give you and your company the space, time, and freedom (and money) to develop your company is a real angel.
You should clearly define your expectations about shareholder rights and time frames, but also set realistic goals for your company. Make sure to be in frequent contact to keep investors updated on your spot in the industry.
On the other hand, you shouldn’t be letting any angel investor set the rules. They might have feedback, but that doesn’t mean you need to put it in writing. You shouldn’t be surprise pitching them for cash either, so plan ahead if you know you’re going to need it. As investor’s primary role is to hand over the money, so don’t expect gushing business advice at every turn.
Above all else, Goldman notes, angels can be distracting. If all your time goes into finding investors and managing the relationship, you’re going to end up forgetting to do your job.
In answering some questions about startups looking for funding, Nivi and Ravikant advise against taking any money from an investor who wants control like a board seat or 50% of the company. They suggest that all angel funding in total should take between 5%-20% equity of the company.
They note that it’s incredibly difficult to fire investors, and you can’t just decide to up and quit one day since by taking their money, you’ve taken on a significant responsibility to them.
The main pro, of course, is money. If the investor can advise you, that’s even better, and the social proof of being funded can help you get even more money.
TechStars co-founder David Cohen is also against the idea that entrepreneurs never have the luxury of being picky about who funds them. For Cohen, the main underlying factor for any successful investment is a solid relationship built on mutual trust and understanding.
He would advise entrepreneurs to ask questions, lots of them, and not just to the investor but to past entrepreneurs whom they’ve funded as well.
And while the money is important, an investor can also wield powerful social currency in the form of introductions to other investors, customers, and partners.
In a perfect world, all entrepreneurs would have a funding coop in their backyard where chickens laid golden eggs. In a slightly less perfect world, everyone could at least be as picky as they want about what investors sign on.
In the real world however, even though startups are often strapped for cash and feel like they don’t have that luxury of choosing, they should still be vigilant against just taking whatever they can get.
After all, you’re taking an investment in your company, your livelihood, and yourself.